High rates hit growth in house prices

By Staff Writer

From Business Day

4 February 2008

by Nick Wilson, Property Editor

MEDIAN house price growth has been stagnating for the past two months
as high interest rates and a relatively expensive residential property
market cool demand from home buyers, says the latest Standard Bank
residential property gauge.

The bank said no house price growth - 0% - year on year was recorded
last month, as was experienced in December.

The median house price was now R570000.

Standard Bank economist Sizwe Nxedlana said this flat market was
indicating there were now "tougher times in property".

"This stagnation in growth is essentially a function of a deterioration
in affordability on the part of home buyers," said Nxedlana.

He said the reason for this was that house prices surged between 2003
and 2006 and interest rates had increased by 400 basis points between
June 2006 and December last year.

"At this juncture, interest rates are high in an environment of elevated
house prices."

Nxedlana said the bank had also seen evidence of a falloff in demand for
home loans.

"Coupled with the deterioration in affordability, the National Credit Act
is also curtailing the demand for residential property and contributing to
suffering of house price growth," he said.

The act was introduced in June last year as a way to prevent reckless
lending and protect the consumer.

It has made bond applications more onerous for prospective home buyers.

Nxedlana said that last year the annual average median house price growth
was 8,3%. This was the lowest annual average in seven years.

He said he was expecting even lower growth for this year than was experienced
last year.

"The reason is I don't foresee any fresh impetus for house price growth from
either monetary or fiscal policy," said Nxedlana.

But the bank said the economy was likely to continue to "post fairly solid
growth" this year, which should be supportive of employment.

Employment was one of the main drivers of the residential property market in
SA, said the bank.

"Thus, while we do not anticipate a meaningful increase in residential
property prices in the short term, due to the head winds confronting the
demand side of the South African economy, the expectation of still solid
economic growth should provide a floor for residential property prices,"
it said.

Low growth could be recorded, with the potential for negative year-on-year
growth in the short term, as a result of these effects, the bank said.

Residential property price growth peaked at more than 35% near the end of
2004 and has since been declining steadily because of decreased demand caused
by the relatively expensive property market.

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